Goodyear Canada Inc. v. American International Companies (formerly American Home Assurance Company) et al.

[Indexed as: Goodyear Canada Inc. v. American International Companies]

Ontario Reports

Court of Appeal for Ontario,

Laskin, Cronk and Hoy JJ.A.

June 13, 2013

115 O.R. (3d) 728 | 2013 ONCA 395

Case Summary

Insurance — Liability insurance — Respondents issuing occurrence-based insurance policies to appellant between 1968 and 1980 — Appellant self-insured for years 1980 to 1985 — Appellant unable to obtain insurance coverage at commercially reasonable rates for asbestos-related liability in United States after 1985 due to decision by insurance industry to stop underwriting such risks — Appellant calling on respondents to defend and indemnify it in respect of U.S. claims arising out of asbestos exposure — Appellant relying on American decision Stonewall Insurance Co. v. Asbestos Claims Management Corp. to contend that respondents should be held responsible for any asbestos injuries that were found to have occurred after coverage cut-off — Motion judge not erring in declining to adopt Stonewall principle into Ontario law — Language of policies clearly indicating that parties agreed to temporal limitation on respondents' duty to indemnify appellant — Public policy considerations weighing against adoption of Stonewall principle in Ontario.

The respondents had issued, at different times, occurrence-based insurance policies to the appellant between 1969 and 1980 under which "all sums" liability coverage was provided for occurrences of bodily injury happening during the various policy periods. The appellant was self-insured for the years 1980 to 1985. It claimed that after 1985, it was unable to obtain insurance coverage at commercially reasonable rates for asbestos-related liability in the United States due to a decision by the insurance industry to stop underwriting such risks. The appellant relied on the American decision Stonewall Insurance Co. v. Asbestos Claims Management Corp. [page729] to contend that the respondents should be held responsible for any asbestos injuries that were found to have occurred after the coverage cut-off. It sued the respondents, seeking a declaration that they were obliged to defend and indemnify it concerning pending and anticipated U.S. claims arising out of asbestos exposure. On a motion to have certain threshold issues determined prior to trial, the motion judge declined to adopt the Stonewall principle and held that the appellant was obligated to self-insure for any asbestos-related injury found to have been suffered by the claimants from 1986 onwards. He also rejected the appellant's contention that the deductibles under the policies should be prorated to accord with the proration of coverage. The appellant appealed.

Held, the appeal should be dismissed.

The motion judge did not err in declining to adopt the Stonewall principle. The coverage grants in this case were unambiguous. The insurer's duty to indemnify the insured was limited to loss caused by or arising out of each occurrence happening during the "policy period" as defined under the policy. Nothing in that language signified an intention by the contracting parties that the insurer's indemnity obligation extended to occurrences happening after the policy period. The unfairness of that principle to affected insurers has been emphasized by various courts in the United States. The fact that the Stonewall principle is far from settled law in the United States militated strongly against importing it into Ontario law. Public policy considerations also weighed against adopting the Stonewall principle in Ontario. By invoking the Stonewall principle, the appellant essentially sought to shift to the respondents the risks attendant on its own business decision to market asbestos-containing products. There was no contractual foundation, or consideration, for that deemed transfer of risk.

The motion judge did not err in finding that the deductibles under the policies should not be prorated to accord with the proration of coverage.

Stonewall Insurance Co. v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995), not folld

AAA Disposal Systems Inc. v. Aetna Casualty and Surety Co., 821 N.E. 2d 1278, 355 Ill. App. 3d 275 (2nd Dist. Ct. App. 2005), appeal denied 829 N.E. 2d 786, 213 Ill. 2d 553 (2005); Boston Gas Co. v. Century Indemnity Co., 910 N.E. 2d 290, 454 Mass. 337 (2009), consd

Other cases referred to

Alie v. Bertrand & Frère Construction Co. (2002), 2002 CanLII 31835 (ON CA), 62 O.R. (3d) 345, [2002] O.J. No. 4697, 222 D.L.R. (4th) 687, 167 O.A.C. 20, 26 C.L.R. (3d) 5, 119 A.C.W.S. (3d) 129 (C.A.), affg [2000] O.J. No. 4860, 30 C.C.L.I. (3d) 297, 11 C.L.R. (3d) 149, 102 A.C.W.S. (3d) 287 (S.C.J.); Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 177 F.3d 210, 29 ELR 21177 (3rd Cir. 1999); Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034, 215 U.S. App. D.C. 156 (D.C. Cir. 1982); Mayor and City Council of Baltimore v. Utica Mutual Insurance Co., 802 A.2d 1070, 145 Md. App. 256 (Md. Ct. Spec. App. 2002); Mid American Energy Co. v. Certain Underwriters at Lloyds London, 2011 WL 2011374 (Iowa Dist. Ct.); NL Industries, Inc. v. Commercial Union Insurance Co., 926 F. Supp. 446 (N.J. Dist. Ct. 1996); Olin Corp. v. Insurance Co. of North America, 221 F.3d 307, 31 ELR 20042 (2nd Cir. 2000); Owens-Illinois, Inc. v. United Insurance Co., 650 A.2d 974, 138 N.J. 437 (1994); Reichhold Chemicals, Inc. v. Hartford Accident, 750 A.2d 1051, 252 Conn. 774 (1999); Surrey (District) v. General Accident Assurance Co. of Canada, 1996 CanLII 2119 (BC CA), [1996] B.C.J. No. 849, [1996] 7 W.W.R. 48, 77 B.C.A.C. 269, 19 B.C.L.R. (3d) 186, 35 C.C.L.I. (2d) 154, [1996] I.L.R. 1-3325, 62 A.C.W.S. (3d) 997 (C.A.); Sybron Transition Corp. v. Security Insurance of Hartford, 258 F.3d 595 (7th Cir. 2001) [page730]

APPEAL from the order of Stinson J., [2011] O.J. No. 4100, 2011 ONSC 5422 (S.C.J.) on an application to determine certain issues before trial.

William G. Scott and Eli D. Mogil, for Goodyear Canada Inc.

Donald H. Rogers, Q.C., for Northumberland General Insurance Company.

W. Colin Empke, for ING Canada.

Vern Rogers, for American International Companies.

Mark M. O'Donnell, for Royal & Sun Alliance Insurance Company of Canada.

Douglas H. McInnis, for Lombard Canada Ltd. and The Home Insurance Company.

The judgment of the court was delivered by

CRONK J.A.: —

I. Introduction

[1] Between 1969 and 1973, the appellant, Goodyear Canada Inc. ("Goodyear"), manufactured and exported industrial gasket material containing asbestos to customers in the United States. When extensive asbestos-related litigation erupted in the United States in the 1970s and 1980s, Goodyear was named as a defendant or third party in a multitude of lawsuits in which the plaintiffs claimed damages for injuries allegedly caused by exposure to asbestos (the "U.S. Claims").

[2] The U.S. Claims are 'continuous loss' or 'long-tail' injury claims: they involve damages claims for injuries allegedly sustained over many years due to exposures to asbestos at unascertainable times. The bodily injuries at issue potentially span the period from 1969 to the present.

[3] Faced with this litigation tsunami, Goodyear called upon the respondents, its Canadian property and casualty insurers, to defend and indemnify it in respect of the U.S. Claims.

[4] The respondents had issued, at different times, occurrence-based insurance policies to Goodyear between 1969 and 1980 under which "all sums" liability coverage was provided for occurrences of bodily injury happening during the various policy periods (the "Policies").

[5] A typical coverage grant in the Policies states:

The [Insurer] will indemnify the Insured for all sums which the Insured will be legally obligated to pay for damages and expenses . . . caused by or arising out of each occurrence happening during the policy period. [page731]

[6] The Policies also contain "per claim" deductibles ranging in amount from $10,000 to $25,000 per claim. Under the terms of the Policies, Goodyear is obliged to pay these deductibles for both defence costs and indemnity before the Policies are required to respond.

[7] For the purpose of this appeal, the parties agree that, subject to applicable deductibles, the coverage provided by the Policies extends to any claim for asbestos injuries arising from exposure to asbestos in the years 1969 to 1980, even if the manifestation of the alleged injuries occurred later.

[8] However, it is also common ground that for the years 1980 to 1985, Goodyear was fully self-insured. This arises from two circumstances. First, commencing in 1980, Goodyear transferred its insurance coverage for product liability risks, including asbestos-related risks, to the insurance program of its parent company in the United States. As a result, from 1980 onwards, Goodyear's Canadian-based insurance policies contained a U.S. territorial exclusion.

[9] Second, also from 1980 onwards, Goodyear's insurance program for U.S.-based product liability claims was subject to significant and steadily increasing self-insured retentions. By 2005, these retentions had escalated to about US$25 million per occurrence.

[10] The principal dispute between the parties concerns the allocation of liability under the Policies for asbestos injuries that are found to have occurred after 1985. Goodyear maintains that from that year onwards, it was unable to obtain insurance coverage at commercially-reasonable rates for asbestos-related liability in the United States due to a decision by the insurance industry to cease underwriting such risks (the "Coverage Cut-off"). Goodyear relies on the decision in Stonewall Insurance Co. v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995), to contend that the respondents should be held responsible for any asbestos injuries that are found to have occurred after the Coverage Cut-off.

[11] In Stonewall, the Second Circuit Court of Appeals considered the implications of a coverage cut-off in circumstances similar to those arising in this case. The Stonewall court accepted that an industry-wide coverage cut-off occurred in 1986. In considering liability allocation in these circumstances, the court held that insurers who had provided coverage for asbestos-related risks prior to 1986 were collectively responsible for claims involving continuing asbestos injuries that occurred after 1986 (the "Stonewall Principle"). [page732]

[12] Under the Stonewall Principle, an insured who was unable to purchase liability insurance at commercially-reasonable rates for asbestos-related risks is essentially relieved of responsibility for claims relating to the years when the appropriate coverage was unavailable.

[13] The main issue on this appeal is whether the Stonewall Principle should be adopted into Ontario law to take account of the Coverage Cut-off. As I will explain, Goodyear urges the endorsement of the Stonewall Principle in this jurisdiction on grounds of fairness and contractual interpretation.

II. Liability Allocation

[14] Liability allocation issues in continuous injury cases involving multiple insurance policies are particularly complex. This case is no exception.

[15] Each of the respondents was 'on the risk', that is, provided coverage under the Policies, for only part of the time during which the injuries due to asbestos exposure allegedly occurred. Further, the timing of the triggering event -- exposure to asbestos -- cannot be established with precision. Asbestos injuries can occur over a number of years after exposure and the expiration of relevant insurance policies. In the U.S. Claims, for example, it is alleged that asbestos fibres from Goodyear's products lodged and stayed in the claimants' lungs for numerous years, only manifesting in disease at much later dates.

[16] None of the Policies contains a specific allocation of loss clause. As a result, based on the language of the coverage grants, quoted above, it is arguable that each insurer on risk between 1969 and 1980 could be held jointly and severally liable for "all sums" that Goodyear is found liable to pay in respect of the U.S. Claims.

[17] Under this "all-sums approach" to liability allocation, a single insurer could be required to pay the entire amount of an asbestos injury claim, notwithstanding that multiple policy periods are triggered by the applicable claim. In effect, the all-sums approach imposes joint and several liability on all insurers whose policies have been triggered.

[18] To avoid the unfairness inherent in the all-sums allocation method, courts in the United States and Canada have sometimes employed a "pro-rata approach" to the allocation of loss in continuous injury cases where multiple insurance policies are in play. The aim of the pro-rata allocation method is to ensure that the allocation of loss to a particular insurance policy is proportionate to the damages suffered during that policy's term. [page733]

[19] For asbestos-related continuous injury claims, like the U.S. Claims, the pro-rata approach has been combined with what is known as the "continuous trigger theory". Under this theory, every insurance policy in effect from first asbestos exposure to discovery or manifestation of injury is deemed to be engaged. Once multiple policies have been triggered, the question then shifts to one of liability allocation.

[20] In combination, the pro-rata allocation method and the continuous trigger theory contemplate that a loss spanning multiple policy years will be allocated to each of the policy periods under the triggered insurance policies. An individual insurer's liability is then determined by dividing the time that it was on risk, by the total length of time during which the loss is found to have occurred. Importantly, part of the loss is also allocated to periods when the insured was self-insured. Consequently, the self-insured bears responsibility for part of the total loss.

[21] In Canada, those courts that have considered the all-sums and pro-rata liability allocation approaches have tended to prefer to allocate the relevant losses over policy periods based on some type of pro-rata allocation method. See for example, Surrey (District) v. General Accident Assurance Co. of Canada, 1996 CanLII 2119 (BC CA), [1996] B.C.J. No. 849, 19 B.C.L.R. (3d) 186 (C.A.); Alie v. Bertrand & Frère Construction Co., [2000] O.J. No. 4860, 11 C.L.R. (3d) 149 (S.C.J.), affd (2002), 2002 CanLII 31835 (ON CA), 62 O.R. (3d) 345, [2002] O.J. No. 4697 (C.A.).

III. The Litigation

[22] In May 2004, Goodyear sued the respondents, seeking a declaration that they are obliged to defend and indemnify Goodyear concerning the pending U.S. Claims and like anticipated claims in the United States, among other relief.

[23] After the commencement of the litigation, the parties agreed to have certain threshold interpretive issues regarding the Policies determined prior to trial on motion to the Superior Court of Justice. For the purpose of the motion, the parties further agreed that the pro-rata approach, coupled with the continuous trigger theory, would apply.

[24] The central issue before the motion judge was how the losses alleged in the U.S. Claims should be allocated under the Policies, using pro-rata allocation and the continuous trigger theory, if Goodyear was involuntarily uninsured after 1985 due to the alleged Coverage Cut-off.

[25] At the core of this issue was Goodyear's claim that the Stonewall Principle should apply to the allocation of liability [page734] under the Policies for post-1985 occurrences. As the motion judge explained, at para. 7, the application of the Stonewall Principle is of critical importance to the parties in this case because, if it does not apply:

[I]t is conceivable that Goodyear effectively has no insurance coverage for most of the U.S. Claims. This is a result of the nature of pro-rata allocation: the monetary value of a single claim may be spread across so many years that the portion allocated to a given year will not exceed the per- claim deductible that Goodyear must absorb before being indemnified by its insurer.

[26] Against this backdrop, the motion judge described the questions for determination in these terms, at para. 37:

Upon hearing oral argument, the issues for determination distilled to the following three:

(1) Whether and for what years, after 1985, was insurance coverage not available on a commercially- reasonable basis to Canadian commercial insureds with respect to occurrences arising in the United States from asbestos-related injuries?

(2) Should the Stonewall Principle be adopted into Ontario law?

(3) Should deductibles for each insurance policy triggered in this action be allocated amongst all policy years triggered on a pro-rata basis?

IV. Motion Judge's Rulings

[27] The motion judge made four critical rulings. First, he found that the Coverage Cut-off was in place after 1985, that is, from 1986 onwards. I did not understand the parties to seriously challenge this finding.

[28] Second, the motion judge declined to adopt the Stonewall Principle. He held that Goodyear was obligated to self-insure for any asbestos-related injury found to have been suffered by third-party claimants from 1986 onwards.

[29] Third, the motion judge rejected Goodyear's contention that the deductibles under the Policies should be prorated to accord with the proration of coverage.

[30] Fourth, the motion judge concluded that neither Goodyear's 1980 decision to transfer all its risk for products sold in the U.S. market to the U.S. insurance market, nor its self-insured retentions on its liability policies after 1980, affected Goodyear's self-insurance obligation.

[31] Goodyear appeals from the motion judge's second and third rulings. If Goodyear's appeal is successful, the respondents appeal from the fourth ruling. [page735]

V. Issues

[32] Goodyear raises two issues on its appeal:

(1) Should the Stonewall Principle be adopted in Ontario?

(2) Should the deductibles under the Policies be prorated among the insurers on risk under the Policies during the period 1969 to 1986, to correspond with the proration of coverage?

[33] If this court determines that the Stonewall Principle should be adopted in Ontario, the respondents raise one issue by way of cross-appeal:

(1) Do the changes effected from and after 1980 to Goodyear's liability insurance program and its self-insured retentions on its liability policies after 1980 affect its self-insurance obligation?

VI. Analysis

A. The appeal

(1) Should the Stonewall Principle be adopted in Ontario?

[34] Goodyear makes two main arguments in support of its contention that the motion judge erred by failing to adopt the Stonewall Principle. First, it submits that the Stonewall Principle is animated by concerns of fairness to insurers and insureds alike. The motion judge's failure to import the Stonewall Principle into Ontario law, Goodyear says, is fundamentally unfair since a true risk transfer between Goodyear and the respondents was not viable after the Coverage Cut-off. The essence of this unfairness argument is succinctly captured in Goodyear's factum, at para. 15:

If the Stonewall principle does not apply, given that the number of years that the claims will be pro-rated [sic] across continues past 1986, combined with the application of customary deductibles, it will result in the insurers not having to indemnify Goodyear at all (as the resulting amounts will be within the deductible that Goodyear must absorb). Each year that passes will further dilute the availability of coverage absent the intervention of this Court.

(Emphasis added)

[35] Second, during oral argument, Goodyear maintained that the coverage grants in the Policies are ambiguous because they fail to address the allocation of liability where the alleged loss occurrences span several policy periods. Goodyear urges that in light of this ambiguity, regard must be had to the reasonable [page736] expectations of the parties and a construction of the coverage grants that favours the insured. This interpretive approach, Goodyear contends, supports the importation of the Stonewall Principle into Ontario law.

[36] Since I regard the proper construction of the coverage grants as critical to the issue whether the motion judge erred by declining to adopt the Stonewall Principle, I turn first to Goodyear's contractual ambiguity argument.

(a) Goodyear's contractual ambiguity argument

[37] I do not accept Goodyear's claim that the coverage grants are ambiguous.

[38] I observe, first, that the parties are at odds as to whether this contractual ambiguity argument was raised before the motion judge. The respondents assert that it was not advanced before the motion judge and that it is raised by Goodyear for the first time on appeal. Goodyear disagrees.

[39] Goodyear's factum contains no assertion that the coverage grants in the Policies are ambiguous. Nor do the motion judge's reasons address this issue. The reasons suggest, throughout, that Goodyear's unfairness complaint was the anchor for its assertion that the Stonewall Principle should be recognized and adopted by Ontario courts.

[40] Be that as it may, I regard the language of the coverage grants as evincing a clear and unambiguous expression of the parties' intentions regarding the scope of the cover afforded under the Policies. I repeat for convenience, the language of what the parties accept is a typical insuring agreement under the Policies:

The [Insurer] will indemnify the Insured for all sums which the Insured will be legally obligated to pay for damages and expenses . . . caused by or arising out of each occurrence happening during the policy period.

(Emphasis added)

[41] On a plain reading of this coverage grant, the insurer's duty to indemnify the insured is limited to losses caused by or arising out of each occurrence happening during "the policy period", as defined under the policy. Nothing in this language signifies an intention by the contracting parties that the insurer's indemnity obligation extends to occurrences happening after the policy period.

[42] The limiting language of the coverage grants is reinforced by the definitions of "policy period" or "policy period territory" set out in many of the Policies. Under these or similar definitions in the Policies, the policy at issue is described as applying [page737] to bodily injuries, accidents or occurrences which take place during "the policy period": see for example, Clause V of the Phoenix Assurance Company Limited Policy #24-058632; Clause IV of the American Home Assurance Company Policy #BE337 53 84; and Clause 10 of the Northumberland General Insurance Policies #IVT 10094 and # IVT 10201.

[43] Thus, the language of the Policies indicates that the parties agreed to a significant temporal limitation on the respondents' duty to indemnify Goodyear -- the insurers' risk is confined to occurrences (in this case, bodily injuries) happening during the defined "policy period". Of course, the duration of the defined policy period varies among the Policies. But the important point is that the parties bargained, in clearly expressed language, for time-limited liability coverage.

[44] I agree with the respondents' submission that, under the established principles of contractual interpretation, the language of the Policies cannot be ignored or re-written. The Policies must be interpreted in a manner that accords with the expressed intention of the parties.

[45] In my view, there is simply no contractual footing for the assertion that the respondents agreed to assume liability for damages occasioned by bodily injuries sustained after (in some cases, many years, if not decades, after) the expiration of the Policies. Contractual language of this type could easily have been included in the Policies if the parties had intended to contract for coverage outside the defined policy periods. Moreover, Goodyear paid no premium for the insurers' assumption of such broadly-cast risks.

[46] Furthermore, Goodyear pointed to no evidence on this record indicating that prior to the date of the Policies or during the defined policy periods, the parties lent their minds to the potential future unavailability of liability insurance in the United States concerning asbestos-related injury claims.

[47] As Goodyear candidly acknowledged during oral argument, in the absence of ambiguity in the language of the coverage grants, the reasonable expectations of the parties are irrelevant to the proper construction of their rights and obligations under the Policies. This was a proper concession.

[48] I therefore conclude that the coverage grants under the Policies are not ambiguous. In my view, they admit of only one reasonable interpretation: the indemnity obligation of the insurers is confined to occurrences that happened during the contractually defined policy period under each of the Policies. That said, nothing in the coverage grants precludes the parties from separately agreeing, if so advised, on a proration of assigned risk [page738] where multiple policies are triggered in respect of the same loss or losses.

(b) Goodyear's unfairness argument

[49] I turn now to Goodyear's invocation of fairness as the basis for the adoption of the Stonewall Principle in Ontario.

[50] As I understand it, Goodyear's unfairness argument proceeds in this fashion. Where allocation of losses over multiple policy periods is required and the parties have agreed that the pro-rata allocation method should be employed, the critical issue is how to achieve fair liability allocation when the insured, through no fault of its own, had no liability coverage for asbestos-related risks in the United States during part of the time that the losses at issue may be found to have occurred.

[51] Goodyear accepts that where the lack of liability coverage is due to an insured's election (for example, where the insured decides to self-insure or does not purchase adequate insurance in a particular year), the insured is obliged to contribute on a pro-rata basis towards the claims at issue. However, Goodyear says that it made no such election. To the contrary, as in Stonewall, Goodyear was willing but unable to purchase insurance coverage for asbestos-related liability in the United States at commercially-reasonable rates due to the Coverage Cut-off.

[52] Goodyear emphasizes that the Stonewall Principle was fashioned by U.S. courts, in factually similar circumstances, to avoid unfairness to insureds by relieving them of responsibility for losses occurring during periods of involuntary non-coverage. In particular, in Stonewall, the court was concerned with liability coverage issues in the context of claims for personal injuries, among other losses, arising from exposure to asbestos. The court framed the issue to be determined as follows, at p. 1186 F.3d:

[T]he relevant time period or periods for which liability insurance coverage is available to a former asbestos product manufacturer confronted with thousands of asbestos-related claims, where the policies at issue are triggered not by the assertion of a claim against the insured but by the occurrence of bodily injury à during the policy period.

[53] The liability allocation issue in Stonewall was subject to many of the same contractual interpretation issues that arise in this case. The Stonewall court, at p. 1186 F.3d, described some of the interpretive difficulties in this fashion:

[T]he standard form language of the insurance policies appears to have been drafted in the expectation that it would usually be applied to the ordinary injury where accident and resulting harm take place almost simultaneously, [page739] a circumstance normally presenting no difficulty in determining when an injury has occurred. As this case demonstrates, however, substantial issues of interpretation arise where the policies are sought to be applied to injuries of a progressive nature, which may not fully develop or become manifest until years after exposure to the injury-causing substance.

(Footnote omitted)

[54] The pertinent holding in Stonewall with which this court is concerned is expressed at pp. 1203-1204 F.3d:

We agree with [the trial judge] that proration-to-the-insured is a sensible way to adjust the competing contentions of the parties in the context of continuous triggering of multiple policies over an extended span of years. We agree that such proration is appropriate as to years in which [the insured] elected not to purchase insurance or purchased insufficient insurance, as demonstrated by the exhaustion of its policy limits. However, we do not agree with the [trial judge's] subsidiary ruling that proration-to-the-insured should be applied to years after 1985 when asbestos liability insurance was no longer available. [The trial judge] applied proration-to-the-insured even after 1985. His rationale was that [the insured] had "bargained away coverage by accepting asbestos exclusion clauses." We think that is not a realistic view of the situation. There is no reason to believe that any bargaining occurred with respect to the asbestos exclusion clauses.

Moreover, we note that judges who have endorsed proration-to-the-insured have done so only to oblige [an insured] to accept a proportionate share of a risk that it elected to assume, either by declining to purchase available insurance or by purchasing what turned out to be an insufficient amount of insurance.

We therefore modify the judgments so as not to apply the proration-to- the-insured approach to years after 1985, the point at which asbestos liability insurance ceased to be available.

(Emphasis added)

[55] Contrary to Goodyear's submission, I see no error in the motion judge's decision to reject the Stonewall Principle. In my view, as I will explain, there are four fundamental problems with the proposition that the Stonewall Principle should be imported into Ontario law.

[56] First, in my view, the Stonewall Principle is inconsistent with the express terms of the Policies, more particularly, the coverage grants.

[57] As I have already explained, the respondents' indemnity and defence obligations were undertaken with reference to occurrences that "happen" during the "policy period". Premiums were set based on this assumption of risk. The application of the Stonewall Principle would oblige the respondents to compensate injured plaintiffs (and to pay associated defence costs) for bodily injuries sustained from 1986 to the present, a period long after [page740] the expiry of the Policies. The unfairness of this result to the respondent insurers is evident since they neither underwrote nor received any premium for such coverage.

[58] The unfairness of the Stonewall Principle to affected insurers has been emphasized by various courts in the United States. In AAA Disposal Systems Inc. v. Aetna Casualty and Surety Co., 821 N.E. 2d 1278, 355 Ill. App. 3d 275 (2nd Dist. Ct. App. 2005), appeal denied 829 N.E. 2d 786, 213 Ill. 2d 553 (2005), the Appellate Court of Illinois, Second District considered, and rejected, the proposition that insurers should be liable, under insuring agreements similar to those contained in the Policies, for losses that occurred during a period when no other insurance coverage was available to the insureds. The court stated, at paras. 23 and 24:

[The] Intervenors' argument ignores the plain and ordinary meaning of the policy period language in the policies at issue. Each of the [insurer's] policies provides:

"This policy applies only to occurrences, as herein defined, which happen during the policy period."

To allow Intervenors to reach into the future and include every occurrence would eviscerate the policy period contained in the policies . . . Nothing in the [insurer's] excess policies indicates that it intended to provide coverage past the finite policy period.

[The] Intervenors ignore that insurance coverage disputes are governed by contract law. This court previously explained that the damages for the years that an insured carried no insurance must be allocated to the insured. To allocate these damages to the insurer would be unfair. Even when an insurer agrees to indemnify an insured for "all sums," it has to be for sums incurred during the policy period. Because the policy periods contained in the [insurer's] insurance policies do not include the years plaintiffs went uninsured, we fail to understand why [the insurer] should have to bear the costs from that period. We understand that insurance coverage was not available for the period at issue, but Intervenors cannot shift responsibility for the uninsured years to [the insurer].

(Citations omitted)

[59] The recent decision of the Supreme Judicial Court of Massachusetts, Suffolk, in Boston Gas Co. v. Century Indemnity Co., 910 N.E. 2d 290, 454 Mass. 337 (2009), is to the same effect. In that case, the court expressly declined to adopt the Stonewall Principle in respect of losses arising from ongoing environmental contamination where to do so would violate the clear language of the insuring agreements at issue. The court explained its rejection of the Stonewall Principle in these terms, at pp. 371-72 N.E. 2d: [page741]

We decline to adopt such an unavailability exception because to do so would contravene the limitation of coverage in the Century policies to liability attributable to property damage during the policy periods. As Century argues in its brief, the unavailability exception "effectively provides insurance where insurers made the calculated decision not to assume risk and not to accept premiums. In effect, because the policyholder could not buy insurance, it is treated as though it did by passing those uninsurable losses to insured periods." This would not be equitable to insurers if the insured purchased coverage for only a few years where there was protracted damage.

(Footnotes omitted)

These comments are apposite in this case.

[60] I conclude that the adoption of the Stonewall Principle in this case would offend the express terms of the Policies and unjustifiably expand the scope of the coverage grants contained in them. To quote the Boston Gas court, the effect of the application of the Stonewall Principle here would be to "provide insurance where insurers made the calculated decision not to assume risk and not to accept premiums". The evident unfairness of this result would be visited not on Goodyear, but rather, on the respondents.

[61] Second, although Goodyear cites numerous decisions of the U.S. courts that it says reveal that the Stonewall Principle has been widely applied in the United States, Goodyear also properly concedes that judicial acceptance of the Stonewall Principle in that country has been far from universal.

[62] In response to the various authorities cited by Goodyear,[^1] the respondents marshal an equally impressive list of conflicting American authorities in which the Stonewall Principle was questioned or rejected altogether.[^2] Indeed, the respondents maintain that a majority of U.S. courts have declined to apply the Stonewall Principle. [page742]

[63] Based on my review of the pertinent U.S. court decisions, I think it is fair to say that the appropriateness of the Stonewall Principle is controversial and its adoption is uneven in the United States, to say the least.

[64] The motion judge was alive to this divide in the American jurisprudence, observing, at para. 88, that: "American courts have been split in their adoption of [the Stonewall Principle]." He noted the various authorities relied upon by the respondents in support of this observation, together with the contrary authorities cited by Goodyear. He reviewed many of these conflicting authorities and carefully scrutinized the holding and reasoning of the Stonewall court.

[65] Having undertaken this analysis, the motion judge observed, at paras. 105-106:

Stonewall, therefore, was the result of American courts' effort to contend with all sums versus pro-rata allocation. All sums was adopted first but later rejected in favour of pro-rata on the basis that unfairness would result if an insured were not held responsible for periods during which it had self-insured and effectively "bargained away" its access to indemnity. In Stonewall, the Second Circuit responded to say that, where no insurance was available, a self-insured's lack of coverage cannot be said to have resulted from a "bargain". As a result, it truncated the pro-rata period so as not to include periods where such insurance was not available. What is crucial is that the Stonewall Principle was not derived logically from first principles but was the result of a series of jurisprudential adjustments made with reference to prior case law.

With all due respect to the Second Circuit Court, as a decision that responds to a particular and idiosyncratic legal development, Stonewall itself lacks the internal logic necessary to support the proposition that the unavailability of insurance is a relevant consideration in the first place. This point has been picked up in American case law that rejects the Stonewall Principle. The Seventh Circuit decision in Sybron is instructive in this respect . . . [The trial judge in Sybron], interpreted Stonewall as a narrow exception that must consider both the availability of the insurance and the intent of the prospective insured. At page 600 of the appeal decision, Judge Easterbrook went further, questioning Stonewall altogether. It is clear from his decision that he struggled to grapple with the logic of Stonewall given the logic underpinning pro-rata allocation:

But instead of asking whether Sybron had some kind of insurance, we prefer to ask why it should matter whether Sybron was insured. Suppose it had not set up any casualty reserves for 1986-88 . . . Why would this affect the legal obligations of a firm whose last policy expired in 1971? The whole idea of a time-on-risk calculation is that any given insurer's share reflects the [ratio] of its coverage (and thus the premiums it collected) to the total risk. The full risk is not affected by whether insurance is available later. [page743]

[66] In the end, the motion judge posed this question, at para. 107: "Why then, should an Ontario court adopt a principle of the Second Circuit whose logic is not evident and whose acceptance into American law has been far from unanimous?"

[67] In my opinion, the motion judge's sceptical stance regarding the Stonewall Principle was fully justified. The courts in the United States are divided, as the motion judge suggested, regarding the appropriateness of applying the Stonewall Principle to apportion liability among multiple insurers and their insured in light of the involuntary unavailability of appropriate liability insurance for an insured.

[68] Indeed, there is no unanimity among U.S. courts concerning the validity of the underlying premise of the Stonewall Principle, namely, that the unavailability of reasonably priced liability coverage for asbestos-related risks in the United States years after the expiration of the relevant insurance policies should affect the allocation of loss under the expired policies. As the motion judge indicated, the logic of this premise has been seen by some U.S. courts, rightly in my view, as highly suspect.

[69] The lack of consensus in the post-Stonewall American jurisprudence on these issues demonstrates that the Stonewall Principle is far from settled law, even in the United States. This militates strongly against the importation of the Stonewall Principle into Ontario law.

[70] Third, in my opinion, public policy considerations weigh against acceptance of the Stonewall Principle in Ontario.

[71] As the motion judge observed, at para. 111, "there is no right to insurance". By invoking the Stonewall Principle, Goodyear essentially seeks to shift to the respondents the risks attendant on its own business decision to market asbestos-containing products. There is no contractual foundation, or consideration, for this deemed transfer of risk.

[72] The public interest in matters such as these favours stability and predictability in the recognition and assignment of liability for insured risks. This, in turn, compels that parties generally be held to their commercial bargains. To hold otherwise would be to promote uncertainty in commercial affairs and the insurance marketplace. I endorse the motion judge's comments, at para. 111:

When any manufacturer brings a product to market, it is responsible for the attendant risks. Insurers may choose or decline to provide coverage for that risk. While insurers may freely contract to indemnify the manufacturer, they are by no means required to do so. Further, where an insurer deems it no longer to be commercially viable to provide such indemnification, it has the freedom not to contract . . . I see no compelling reason -- [page744] and surely none grounded in fairness -- why an insurer who has made a business decision not to provide coverage should be forced to do so because it was not available elsewhere.

[73] Finally, it must be underscored that the pro-rata allocation method and the continuous trigger theory are judicially-conceived constructs that are themselves designed to promote fairness. The motion judge recognized this, at para. 110, when he commented, "[p]ro-rata allocation and the continuous trigger theory are all about fairness". He continued, at para. 110:

That the effect of these mechanisms is that a payout may not exceed Goodyear's deductibles, for which it bargained (and paid a corresponding -- and no doubt lower -- premium), is not unfair: Goodyear is receiving precisely what it bargained and paid for.

I agree.

[74] I therefore conclude that the adoption of the Stonewall Principle in Ontario is neither appropriate nor necessary to achieve a fair allocation of loss among the parties in respect of the U.S. Claims in accordance with the cover for which they bargained. Accordingly, I would reject Goodyear's challenge to the motion judge's refusal to adopt the Stonewall Principle.

(2) Should the deductibles be prorated?

[75] Like its argument regarding the Stonewall Principle, Goodyear seeks to cloak its proration of deductibles submission in notions of fundamental fairness. It argues in its factum -- with little elaboration -- that the deductibles provisions of the Policies are ambiguous. Given that ambiguity, Goodyear submits that if the pro-rata allocation method is used to allocate losses over multiple policy periods, fairness dictates that the deductibles applicable over the same policy periods should be similarly prorated.

[76] The motion judge rejected this argument, holding, at para. 129: "I have no trouble finding that the [Policies] unambiguously call for deductibles to be applied separately to each claim." He concluded, at para. 131:

The Policies clearly and unambiguously dictate that Goodyear must cover a certain, pre-determined, and bargained for amount for each policy period before the coverage is triggered. I see no reason why this should change simply because that coverage is arrived at by way of a pro-rata allocation, nor do I see how doing so would be unfair.

[77] I agree. The deductibles provisions of the Policies oblige Goodyear, in clear and unambiguous language, to pay a specified deductible on a per-claims basis. A typical deductible clause under the Policies reads: [page745]

It is hereby understood and agreed that each claim under this Policy shall be adjusted separately and from each such separate claim shall be deducted an amount of Ten Thousand Dollars ($10,000.00). Such amount to be borne by the Insured.

(Emphasis added)

[78] Thus, each of the Policies provides for the payment of a fixed deductible in respect of "each . . . separate claim" that triggers the insurer's indemnification obligations. There is no language in the Policies contemplating adjustment of the deductibles when other policies, even multiple policies over multiple policy periods, are also triggered to respond to the same claim. The payment of the deductibles is an agreed contractual prerequisite to the insured's ability to access the liability coverage afforded under the Policies.

[79] Further, as Goodyear fairly concedes, there is no Canadian precedent for the proration of deductibles in continuing loss, multiple policy period cases. The existing authorities endorse the application of full deductibles. See, for example, Alie.

[80] Nor does the relevant American jurisprudence clearly support the proration of deductibles in circumstances analogous to those of this case. On this issue, as well, the U.S. courts appear to be divided. Moreover, in those U.S. cases where such proration has been endorsed, the case for proration appears to have been grounded in part on the ambiguity of the contractual language of the insurance policies in question. As I have said, I see no ambiguity in the deductibles clauses of the Policies at issue in this case.

B. The cross-appeal

[81] The respondents' cross-appeal is premised on Goodyear's success on its appeal. As I would dismiss Goodyear's appeal for the reasons given, it is unnecessary to address the issue raised on the cross-appeal.

VII. Disposition

[82] I would dismiss the appeal and the cross-appeal. I would award the respondents their costs of the appeal, fixed in the amount of $25,000 as agreed by the parties, inclusive of disbursements and HST.

Appeal dismissed.

[^1]: See Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034, 215 U.S. App. D.C. 156 (D.C. Cir. 1982); Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 177 F.3d 210, 29 ELR 21177 (3rd Cir. 1999); Olin Corp. v. Insurance Co. of North America, 221 F.3d 307, 31 ELR 20042 (2nd Cir. 2000); Mayor and City Council of Baltimore v. Utica Mutual Insurance Co., 802 A.2d 1070, 145 Md. App. 256 (Md. Ct. Spec. App. 2002). See, also, for the origins of the Stonewall Principle, Owens-Illinois, Inc. v. United Insurance Co., 650 A.2d 974, 138 N.J. 437 (1994).

[^2]: These cases include Sybron Transition Corp. v. Security Insurance of Hartford, 258 F.3d 595 (7th Cir. 2001); AAA Disposal Systems, supra; Reichhold Chemicals, Inc. v. Hartford Accident, 750 A.2d 1051, 252 Conn. 774 (1999); Boston Gas Company, supra; NL Industries, Inc. v. Commercial Union Insurance Co., 926 F. Supp. 446 (N.J. Dist. Ct. 1996); Mid American Energy Co. v. Certain Underwriters at Lloyds London, 2011 WL 2011374 (Iowa Dist. Ct.).